China Merchants Securities (CMSC) has released a report stating that since the first quarter of 2026, prices for various memory products have increased sharply quarter-over-quarter. With visibility suggesting continued price rises throughout the year and limited new global supply additions in 2026, the memory shortage trend is expected to persist into 2027. The combination of rising prices and strong demand is anticipated to make 2026 a year of significant earnings release for memory companies globally. The sustainability of future price trends and earnings growth for companies across the supply chain remains a key focus. The report recommends focusing on companies within three core segments: memory, equipment, and the broader industry chain.

Key viewpoints from CMSC are as follows:

NVIDIA's memory cabinets and the DS Engram module highlight the evolution towards a multi-tiered storage architecture in AI data centers, underscoring the growing importance of NAND flash.

New memory production capacity in 2026 is limited. Overseas original equipment manufacturers (OEMs) are experiencing delays in effective capacity expansion due to factors like technology transitions, with the supply-demand gap projected to last until 2027. OEM inventory remains tight, prompting downstream module manufacturers to initiate strategic stockpiling to meet customer demand. These structural supply-demand dynamics further support the upward trend in contract prices for 2026, driving steady earnings growth for companies in the industry chain. Attention is advised on overseas memory OEMs, domestic module makers, niche memory players, and upstream equipment and materials suppliers.

On the demand side, AI inference is driving exponential growth in storage needs, establishing NAND as the capacity foundation for data centers. AI inference is pushing storage architecture towards a three-tier pyramid of "HBM + DRAM + NAND." Retrieval-Augmented Generation (RAG) and long-context models solidify the crucial role of high-capacity NAND in reducing costs, improving efficiency, and mitigating "model hallucination." Technologically, multimodal video generation demands a hundredfold increase in memory. NVIDIA's Rubin platform introduces a 16TB independent memory cabinet per GPU, while the DeepSeek Engram architecture uses DRAM/SSD to offload pressure from HBM, validating the technical path of "trading high-capacity, low-cost storage for computational efficiency." Storage capacity per unit is seeing exponential growth. At the industry level, NAND has officially entered the zettabyte era, with data centers poised to replace mobile devices as the largest single market. The server DRAM share is forecast to exceed 50% in 2026. Medium to long-term global memory bit demand is expected to maintain a Compound Annual Growth Rate (CAGR) of around 20%, with data center DRAM and NAND CAGRs from 2023-2030 projected at 28.3% and 32.6% respectively, far exceeding growth rates in traditional end markets.

On the supply side, while capital expenditure is accelerating in 2026, the release of effective capacity lags, driving a sustained seller's market in the global memory chain. Major OEMs are significantly increasing capital expenditure. According to TrendForce forecasts, Samsung, SK Hynix, and Micron are expected to invest approximately $20 billion (up 11% YoY), $20.5 billion (up 17% YoY), and $13.5 billion (up 23% YoY) respectively. However, investment focus is heavily concentrated on HBM and technology transitions to advanced DRAM processes. New capacity expansions are not expected to come online until after 2027, severely limiting short-term supply elasticity. The industry supply gap is projected to continue into 2027. Constrained by capacity bottlenecks, DRAM and NAND bit shipment growth rates for 2026 are forecast to remain around 20%. The explosion in AI server demand is pushing the server segment's share of both DRAM and NAND bit shipments above 45%. This supply-demand mismatch will strongly support the continuation of a seller's market structure.

Inventory levels across the chain show significant divergence, with tight OEM inventory expected to persist throughout 2026. OEM inventory levels continue to decline, and shortages in server DRAM and NAND are anticipated to last all year, establishing a foundation for a prolonged seller's market. Mid- and downstream manufacturers, including Taiwanese and mainland Chinese companies, are generally building inventory proactively. Mainland Chinese module makers, for instance, saw Q3 inventory accumulate, increasing 34% year-on-year to a record high, in preparation for the 2026 supply gap. This positions them to potentially realize significant profit elasticity through the revaluation of low-cost inventory during the price upturn.

Regarding pricing, the crowding-out effect of AI capacity is causing the supply-demand gap to widen, leading to high sequential growth in Q1 2026 contract prices. In the spot market, although DDR4 prices saw a slight correction for the first time, halted supply from OEMs is supporting overall high price levels, not affecting the broader upward trend. For contract prices, driven by robust server demand, prices are rising sharply. DRAM and NAND contract prices in Q1 2026 are forecast to increase sequentially by approximately 90-95% and 55-60% respectively. As capacity bottlenecks extend to the PC and mobile segments, prices across all product categories are expected to see widespread increases.

Driven by the supply-demand mismatch, the entire chain is experiencing volume and price increases. OEMs are securing high growth through Long-Term Agreements (LTAs), while mid- and downstream players are seeing accelerated earnings elasticity. According to TrendForce projections, propelled by sustained memory price and demand increases, the DRAM and NAND Flash industry revenue is forecast to reach $551.6 billion in 2026, a 134% year-on-year increase, and set another peak at $842.7 billion in 2027, up 53% year-on-year. The global memory chain officially entered an earnings explosion phase in Q4 2025. OEMs (Samsung, SK Hynix, Micron, Nanya Tech) reported record-high revenue and profits, with significantly enhanced growth certainty and sustainability benefiting from the AI demand surge and customer long-term contracts. Niche and module manufacturers in Taiwan and mainland China, leveraging strategic inventory advantages, have achieved substantial profitability recovery amid the price hikes driven by the mismatch. As OEM capacity tilts towards high-end products, causing continued tightness in commodity products, the industry-wide volume-price growth dynamic is expected to strengthen further in 2026, indicating a clear upward trajectory for mid- and downstream company earnings.

Risk factors include AI computing capital expenditure falling short of expectations, inventory write-down risks, international trade frictions and supply chain volatility, intensifying industry competition, currency fluctuation risks, and the risk of price declines.